Despite the uncertainty created by Brexit, and the emerging trend of weakness in the global economy, the Irish economy will grow this year by 4.8% with strong domestic demand stoking activity and unemployment coming down to 7.8% from its 2015 level of 9.4%.

That’s according to the quarterly economic outlook from Merrion Stockbrokers, which forecasts further growth in GDP of 3.8% in 2017, taking account of the uncertainties.

The Merrion view is that the pulse of the global economy is swinging from net strength towards weakness in response to the Brexit shock. The vote to leave the EU may well result in a domestic recession in the UK, the outlook says, and while this would present only a mild direct drag for global growth conditions, given the limited size of the economy, the contagion risks are substantial.

The report says: “The most immediate concern is Euroland, where policymakers need to respond fast and aggressively. Policymakers elsewhere may need to also provide stimulus if the UK housing market topples and/or global financial system stresses develop.”

Further on Brexit and its effects here, Merrion says: “The UK is the second largest single customer for Ireland’s goods and the largest for its services. At the same time, Ireland imports 30% of its goods from the UK. While the UK might only account for 16-17% of Ireland’s total exports, 30% of all employment is in sectors which are heavily related to UK exports. SMEs (particularly agri-food and tourism) will likely be more affected than larger companies by the introduction of tariffs and barriers to trade.”

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They conclude that the impact will knock a quarter to a half percentage point off economic growth in the short term. On consumer spending, Merrion believes that, despite the emerging uncertainties, tax cuts and low interest rates should lead to higher personal spending in 2016, as should the improving labour market.

“As regards 2017, we would expect consumer spending to hold up reasonably well  due to the underlying strength of the labour market, but the increase in expenditure may be lower than forecast a few months ago.”

On house prices, they see  a more modest increase of 6.0-6.5% in 2016 as against the CSO’s figure of 10.6% in 2015.

“The budgetary position in the first half of the year is strong enough to enable Minister Noonan to deliver on the government promise of spending increases and modest tax cuts in Budget 2017. Beyond that, however, there are no certainties, with the level of fiscal space depending on how the economy fares in a post-Brexit world,” the report states.